Greece to announce bond buyback results Wednesday

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Last Updated: Wed, Dec 12, 2012 00:15 hrs

Greece will reveal the results of a key debt buyback deal Wednesday, after an extended deadline for private investors to decide whether they will sell back their Greek bond holdings at a discount expired without any official announcements.

Finance ministers from the 17 European Union countries that use the euro held a conference call late Tuesday on the deal, which is designed to ease Greece's crippling debt load and unlock vital rescue loans.

There were no comments after the call, and the Greek debt management agency said it would issue a statement on investor response early Wednesday.

The deal offered attractive terms to foreign funds that had bought the Greek bonds at rock bottom prices during the worst period of the financial crisis and now stand to make a hefty profit. Greece's cash-starved banks, which own more than €15 billion worth of the bonds, had little option other than to sign up as they depend on government rescue loans.

The country's international bailout creditors — fellow eurozone countries and the International Monetary Fund — had demanded the buyback as one of the conditions for paying out a long-delayed installment in rescue loans.

IMF chief Christine Lagarde told reporters in Colombia on Tuesday that she would leave it to the EU finance ministers to comment at length but expressed satisfaction with the deal.

"For the moment I can only welcome the results that have been produced by the debt buyback," she said.

If the buyback goes well, eurozone officials will approve Thursday the disbursement of €34 billion. The money is earmarked to boost domestic lenders and pay some of the government's mounting bills to state suppliers.

Debt-crippled Greece has depended on international rescue loans for the past two and a half years, after it admitted its budget deficit was more than three times the initial forecast and swiftly lost access global bond markets. In exchange for the funds, the government repeatedly slashed incomes and raised taxes to tame the deficit — but in the process created widespread public resentment.

That is expected to increase with the submission to Parliament Friday of a new tax bill incorporating many of Greece's latest austerity commitments, including a 15 percent tax on bank deposit earnings. The presentation will be delayed by three days to ensure its approval by the two small center-left parties in Prime Minister Antonis Samaras' uneasy conservative-led coalition.

The initial deadline for investors to declare interest in the buyback plan has been extended from last week, to encourage the biggest possible participation. The deal is hoped to shave some €20 billion off Greece's €340 billion national debt load.

Athens can use up to €10 billion in European funds to rebuy about half its privately-held debt at a third of its nominal value. The proposal should be attractive to many investors, as the average price was higher than the market value of its bonds when the offer was announced, and some daring bondholders who bought during the summer could see their initial outlay triple.

Although the country is frozen out of long-term bond markets, it maintains a market presence with regular sales of short-term debt. The T-bills are mostly taken up by the liquidity-starved domestic banks that need them as collateral for their own borrowing needs.

Earlier Tuesday, Athens raised €4.4 billion ($5.7 billion) in auctions of one-month Treasury bills — an unusually short-term issue which Greece has resorted to twice in as many months — and six-month paper.

In both cases, the yields were not significantly changed from the previous auctions of the same maturity.